Prospects for Growth, Employment and Poverty Reduction in Africa after the GFC: Countercyclical Fiscal Policy for Africa

To counter the effects of the international crisis on the domestic economy, most governments in Africa could initiate a macroeconomic stimulus package. The package would be fiscal expansion complemented by currency depreciation implemented through exchange rate management. The fiscal expansion would be largely financed by borrowing from the central bank, with a component of additional external assistance. Exchange rate management is a necessary complement in order to 1) to raise the relative price of tradables to prevent the fiscal expansion from generating an unsustainable trade deficit; and 2) to achieve a real exchange rate associated with the fiscal expansion that is sufficiently trade altering but not excessively inflationary